GST Composition Scheme (2026): Turnover Limit, Rate, CMP-02 and Returns
CA Meet Dhrangadhariya 
September 15, 2026
CA Meet Dhrangadhariya September 15, 2026
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7 min readTable of Contents
Last updated: 19 October 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
The Composition Scheme under GST exists so that a small trader, manufacturer or restaurant does not have to deal with the full set of GST compliance: a tax invoice for every sale, input tax credit reconciliation, and a monthly return. In exchange for that simplicity, a composition dealer pays a flat, low rate of tax on total turnover and gives up input tax credit.
New to GST terms such as “input tax credit” or “tax invoice”? See the technical terms explained in simple words further down.
Under Section 10 of the CGST Act, 2017, confirmed on the CBIC Tax Information Portal, a registered person can opt for the scheme if their aggregate turnover in the preceding financial year does not exceed:
| Category | Turnover limit |
|---|---|
| General category states | Rs 1.5 crore |
| North-Eastern states and Himachal Pradesh | Rs 75 lakh |
| Service providers and mixed suppliers (section 10(2A)) | Rs 50 lakh |
Aggregate turnover is computed across all businesses registered under the same PAN, not for one GSTIN alone.
A manufacturer or trader who opts under section 10(1) can also supply services up to 10 percent of turnover, or Rs 5 lakh, whichever is higher, without losing eligibility.
A taxpayer already registered as a regular dealer opts in by filing FORM GST CMP-02 online on the GST Portal, under Services, then Registration, then Application to Opt for Composition Levy. This intimation is filed once at the start of the financial year for which the option is to apply, and stays in force for later years unless the dealer opts out or becomes ineligible.
A person applying for a fresh GST registration can choose the composition option at the time of registration itself, without filing CMP-02 separately.
Section 10 of the CGST Act caps the composition rate; the actual rate charged is prescribed by Rule 7 of the CGST Rules, 2017, verified directly on the CBIC Tax Information Portal:
| Type of business | CGST | SGST | Total |
|---|---|---|---|
| Manufacturers and traders of goods | 0.5% | 0.5% | 1.0% |
| Restaurants not serving alcohol | 2.5% | 2.5% | 5.0% |
| Service providers and mixed suppliers (section 10(2A)) | 3.0% | 3.0% | 6.0% |
The tax is calculated on total turnover of the quarter, not on a value-added or margin basis, and is paid by the dealer out of pocket - it cannot be collected from the customer.
A composition dealer cannot issue a tax invoice, because GST is never charged to the customer. Instead, a Bill of Supply is issued, carrying the words “composition taxable person, not eligible to collect tax on supplies” at the top.
| Form | What it is | Due date |
|---|---|---|
| FORM GST CMP-08 | Quarterly statement-cum-payment of tax | 18th of the month after the quarter ends |
| FORM GSTR-4 | Annual return | 30th June following the end of the financial year |
A composition dealer is not required to maintain the detailed records that a regular taxpayer must keep, and does not file the monthly GSTR-1/GSTR-3B cycle.
A dealer who crosses the turnover limit, starts an ineligible activity, or simply wants to move back to regular GST must file FORM GST CMP-04 on the GST Portal, intimating withdrawal from the scheme, after which normal GST provisions (tax invoices, input tax credit, monthly returns) apply from the date of withdrawal.
Advantages
– Lower compliance: one annual return instead of monthly filings, and simpler record-keeping.
– A fixed, low rate of tax, which keeps cash flow predictable for a small business.
– No need to track input tax credit on every purchase.
Disadvantages
– No input tax credit on purchases, which can raise the effective cost of inputs.
– No inter-state sales and no sales through an e-commerce operator that collects tax at source.
– Customers who are themselves GST-registered cannot claim any credit on their purchase from a composition dealer, which can make the dealer a less attractive supplier to a GST-registered buyer.
Choosing between the Composition Scheme and regular GST registration depends on your customer mix, margins and growth plans, not turnover alone. Please reach out to our team and we will be happy to assist with the comparison, the CMP-02 filing, and the quarterly and annual compliance that follows.
| Term | What it means |
|---|---|
| Aggregate turnover | The total value of all taxable, exempt and export supplies made under one PAN, across all its GST registrations, counted together. |
| Input tax credit | The GST a business already paid on its purchases, which it can normally subtract from the GST it collects on its sales. A composition dealer gives this up. |
| Tax invoice | The GST-charging bill a regular dealer issues, showing the tax separately so the buyer can claim credit. |
| Bill of Supply | The bill a composition dealer issues instead of a tax invoice, since no GST is shown or charged to the buyer. |
| Reverse Charge Mechanism | A situation where the buyer, not the seller, has to pay GST directly to the Government on a purchase. |
| FORM GST CMP-02 | The online form used to opt into the Composition Scheme for a financial year. |
| FORM GST CMP-04 | The online form used to opt out of the Composition Scheme. |
| FORM GST CMP-08 | The quarterly form on which a composition dealer pays its tax. |
| GSTR-4 | The annual return a composition dealer files summing up the year’s turnover and tax paid. |
A trader, manufacturer or restaurant (not serving alcohol) whose aggregate turnover in the preceding financial year was up to Rs 1.5 crore (Rs 75 lakh in the North-Eastern states and Himachal Pradesh), and who meets the conditions under section 10 of the CGST Act.
A manufacturer of ice cream, pan masala or tobacco, a person making inter-state outward supplies or supplying goods through an e-commerce operator required to collect tax at source, a casual taxable person, a non-resident taxable person, and any person or goods notified by the Government on the Council’s recommendation.
1 percent of turnover for manufacturers and traders of goods, 5 percent for restaurants not serving alcohol, and 6 percent for other eligible service providers and mixed suppliers opting under section 10(2A).
By filing FORM GST CMP-02 online on the GST Portal, under Services, then Registration, then Application to Opt for Composition Levy, before the start of the financial year for which the option is to apply.
No. A composition dealer cannot claim input tax credit on purchases and cannot charge GST to customers, so a Bill of Supply is issued instead of a tax invoice, marked “composition taxable person, not eligible to collect tax on supplies”.
A quarterly tax payment in FORM GST CMP-08, due by the 18th of the month after the quarter ends, and an annual return in FORM GSTR-4, due by 30th June following the end of the financial year.
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
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